Mitigating Risks in International Sales and Letter of Credit Essentials

Risk Mitigation in Purchase/Sale Transactions

• Goods in Transit Insurance: Risk-based coverage for transport means, company, goods, packaging, etc.
• Default Risk Protection:
  • Assessment based on client risk and country.
  • Financial solutions like non-recourse factoring.
  • In Spain, collaboration with ECESB (Spanish export credit company).
• Non-Delivery Risk Mitigation for Paid Documentary Credits.
• Currency Exchange Risk Management.

Documentary Letter of Credit

• The Letter of Credit (L/C) offers the most secure payment method for exporters, albeit at a higher cost for importers.
• A bank, at the importer's request, commits to pay the exporter upon presentation of compliant documents.
• Assures importers of goods delivery as per payment and exporters of payment recovery.
• Essential in complex international sales due to factors like:
  • Transit time of goods
  • Merchandise handling formalities
  • Potential transit mishaps
  • Foreign trade regulations and exchange controls
  • Country-specific regulatory differences
  • Exporter-importer unfamiliarity
  • Language, currency, and customs variations

Letter of Credit Documentation

• International Transport Documentation
• • Goods Transportation Insurance (health insurance, insurance certificate)
  • Sales Documents (commercial invoice, proforma invoice, etc.)
  • Other Documents (certificate of analysis, inspection certificate, weight certificate, health certificate, certificate of origin, negative blacklist certificate, consular invoice, packing list, storage receipt, etc.)
  • Alternative to "Documentary Shipment" Letter of Credit (exporter initiative using a sight or time draft)

Important Note: Be aware of customs procedures and associated costs.